Monday, January 31, 2005

This was the question posed by a commenter on my last post. He or she makes some suggestions for what I could do, and so I figured I would post them and provide some further comments.

1. You could contribute to moderate Republicans who would increase taxes (I don't believe in such a thing, but you apparently do).

Yes, this is true, but how would an anonymous commenter on the blog know which candidates I contribute to and which ones I don't? In general, I don't give money to politicians, but neither do I hang up the phone when they or their staffs occasionally call. I would lend support to any elected official, of any party, who set a more ambitious deficit reduction target than cutting the unified budget deficit in half by 2009. We are in the healthy part of a cyclical recovery--the on-budget deficit (i.e. excluding the level and growth of the Social Security surplus) should be in surplus. To get back into surplus, I believe that we should take as much as we can out of spending (including the General Fund's contribution to Medicare and the part of the Defense budget that represents corporate welfare) before raising taxes. But if the spending cuts are inadequate, broad-based taxes should go up to get the budget in balance over the business cycle.

2. You could organize Republican economists for sanity who could propose increasing taxes.

I suppose this is another possibility, but I don't have the time. Between teaching and research and other administrative responsibilities, I barely have time to blog these days. But if there is a coalition forming on the center-right around fiscal restraint on spending, I would be happy to lend my voice. I certainly don't support making the remaining 2001 and 2003 tax cuts permanent before the budget is brought into balance (which, in the current environment, means that I don't support making them permanent).

3. You could testify before Congress in opposition to this administration's tax policies.

History suggests that my testifying is bad for the President. I was asked to testify twice before. The first occasion coincided with the delivery of the Starr Report. The second occasion coincided with the impeachment hearings. I don't think I had the Senators' full attention either time. But more importantly, one has to be asked to testify, and no one has been asking. I would go if asked.

4. You could write an op-ed supporting higher taxes and restoring a more progressive tax structure.

I've had virtually no success in getting op-eds published over the years. (Here is an exception that I like.) Part of the reason I started blogging was because I think that a well done blog, or even an insightful post, is going to be almost as good and with much lower hassle. I think that I have been mindful of budget balance and progressivity on this blog. See this Econoblog in the Wall Street Journal, this post on how I would reform Social Security, and this post on how I would change the tax treatment of health insurance premiums.

I appreciate the comments, even those that begin with "Hack!" The irony of this exchange, to me at least, is that the last post expressed disappointment that, for no good reason, the baseline budget got $300 billion worse over 10 years due to legislation passed since last September.

9 comments:

Anonymous
said...

You expressed disappointment, but the deterioration of our fiscal situation is exactly what you should have expected given this President and this Congress. At this point they have a well-documented track record of fiscal irresponsibility and budgeting shenanigans (see the Decembrist on "How to Read a Bush Budget", for example). And since indications seem to be that, when given the choice in November, you supported the status quo, your disappointment seems insincere. Admittedly, you might have made that choice based on other factors, but, in that case, the appropriate time for disappointment is past (it would have been of the form: "It is disappointing that because of issues X, Y and Z I end up preferring a government that will be more fiscally irresponsible than other alternatives"). If fiscal responsiblity is really your important issue, you needed (and need) to do more than support moderate Republicans. If nothing else, we have good recent evidence about how divided government can constrain taxing and spending.

OK, good, that you'd let the Bush tax cuts sunset if the budget doesn't get balanced on the spending side.

Given that income taxes have fallen well below the historical range post WWII , as a fraction of GDP, while spending is back above the WWII average, what do you think the odds are that spending can really be cut enough to bring the budget into balance without the assistance of the SS surplusses?

Somewhat related question. If we bring the on-balance deficit under control, do we now have sufficient treasury debt at appropriate maturities to allow the SS trust to accumulate that debt between now and the 2020s; and if we do that, will the FED have adequate resources to maintain the US position as a global reserve currency; and would we be able to roll that debt back out to the public after 2028 as needed; or might there not be sufficient publicly traded US treasury debt to let that happen?

And if there isn't enough treasury debt around, could the federal reserve, perhaps, manage those assets for 20 years, and use them to solve the trade imbalance issues? And if that could theoretically work, would that involve too much risk to the SS trust? Or, what other ways could the assets accumulate within a fiscally disciplined on-budget account?

I'll comment more later, but this would have been an excellent post if I had not known the dishonesty of it from the get-go. I checked opensecrets.org prior to asking if you were powerless. You have made no contributions to federal candidates that I can see and since we are talking about the federal budget, I won't accept that you might have contributed in other races as an explanation for what you wrote. You were clearly trying to imply that you might have already exercised the option. You have not contributed so don't pretend that you might have but I couldn't know.

I'm not sure why this matters to you so much, but you should at least be clear that what you verified is that I have not made a financial contribution to any candidate for federal office in the amount of $200 or more. I presume that you know that the FEC does not make smaller contributions a part of the public record.

My sincere apologies. You certainly might have contributed. I was under the mistaken impression that all contributions over $50 were reported. Thank you for correcting me and I do apologize.

I think that the idea that the general fund crisis can be brought into line by spending cuts is wishful thinking. Your solution to not make the tax cuts permanent may address the structural deficit years out, but by that time, events will overtake any ability of fiscal policy to control them. We need to address it now and the best/only way is with a tax increase.

You can link to refs.blogspot.com. Send me email at republican(period)economists(period)for(sanity)(at)gmail.comto indicate who else might be willing to join. I will link to your posts that you wish me to with the following criteria: 1. They must advocate a balanced budget. 2. They must be in opposition to the current administration policy. If I don't feel it meets that criteria then I will email you back and explain why. I will try to be fairly liberal in my interpretation.Feel free to share this address and method with any other Republican economists. If they don't have a blog then I will post their email, but they will have to provide phone contact information in that case so I can confirm it is not a spoof.

Regarding testifying before Congress, I imagine that any Democratic Congressperson would be happy to have you available to oppose the administration, but I suspect that your position of try spending cuts first precludes them as seeing you as an ally.

If you can't get an op-ed placed by yourself then why not jointly write an op-ed with a Democrat like Max Siwicky or Brad DeLong talking about the general fund crisis and its priority over any issues with social security. I find it hard to believe that you couldn't get that placed. It would be easy to market.

In general I think tax cuts and spending cuts should go together. Otherwise the tax cuts are really “tax shifts” and as Professor Samwick wrote; our tax cuts become “our children's taxes”.

There are times when some deficit spending is appropriate, but the spending should be correctly targeted. Bush’s package was promoted ex ante as returning the surplus back to the people. What surplus? It was an illusion. Then Bush (as is his MO) changed the rationale for the tax cuts ex post to being a stimulus package. If that is the case, the fiscal package was poorly structured to provide stimulus to the economy.

Samwick argues (and I agree) that we should “get the budget in balance over the business cycle.” I also agree that we are in the “healthy part of a cyclical recovery” (at least as healthy as this one will probably ever be), however I think we are closer to the end of this business cycle than the beginning.

To balance the budget over this cycle we need to take aggressive action now. I believe a combination of reversing some or all of Bush’s tax shifts is an important first step.

This year the General Fund deficit will be close to $650 Billion. I don’t see any way to significantly reduce that deficit without tax increases. With the AMT hitting more and more families (currently 3 million taxpayers – projected to be 29 million in 2010) we have another fiscal problem brewing.

It seems our fiscal priorities should be: the General Fund deficit and healthcare costs (especially medicare). Why are we even discussing Social Security right now?

About Me

I am a Professor of Economics and the Director of the Nelson A. Rockefeller Center at Dartmouth College. I am on the board of Ledyard Financial Group (LFGP) and currently serve on the Census Scientific Advisory Committee. I blog about economics, politics, and current events at http://samwick.blogspot.com. The opinions expressed here, there, and everywhere do not necessarily reflect the views of Dartmouth College or any other institution with which I am affiliated.

Links to Vox Baby

Some Good Reads

Disclaimer

This is a personal weblog. None of the opinions expressed here should be construed to represent the opinions of Dartmouth College, the Rockefeller Center, or any other group with which I am affiliated.